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A company has the following securities outstanding:
- 1 million shares of common stock. The shares are priced such that the firm's P/E multiple is 10, i.e. the price per share is 10 times the earnings per share.
- 1,000 perpetual bonds, each with a face value of $1,000, a coupon rate of 10% (paid once a year) and a current yield (an effective annual rate) of 8%. These bonds will pay annual interest every year for ever and there will be no principal paid back. (happens at infinity). The firm has EBIT every year, of 500,000, and pays out all of its net income as dividends. The tax rate is 30%. The risk free rate and the expected risk premium on the market are both 7%.
1. What is the current market value of the firm's equity and debt?2. What is the required rate of return on the firm's equity? What is the beta of the equity?3. What is the firm's after tax WACC?
computation of profit margin that the firm needs in order to achieve the promised roe holding everything else
Analyze the GAAP and IFRS methods to account for interim acquisitions of subsidiary stock at the end of the first year to determine which is most applicable in the greatest number of situations. Explain your rationale.
paints-r-us company gives painting services to commercial clients. by tracking overhead costs in an activity-based
Date of bonds: Issued January 1, 2010; maturity date: January 1, 2015; face value: $200,000; face interest rate: 10 percent paid semiannually (5 percent per period); market interest rate: 8 percent (4 percent per semiannual period); issue price: $216..
What are the basic elements of a financial accounting system? Do these elements apply to all businesses from a local restaurant to General Motors? Explain
Why should the payback method of analyzing capital purchases never be used as the sole basis for decision making?
make a comparison of the following items and note trends.bullrevenuesbullcost of good soldbullaccounts
Prepare the journal entry to establish the petty cash fund and At the end of April, the fund had $28 in it. The petty cash custodian presented receipts
Assuming that expected September direct labor hours are 700, what is expected factory overhead cost using the cost formula in Requirement 2?
Actual pounds of fertalizer produced and delivered 12,600,000 pounds. Actual variable manufacturing overhead costs $38,250. What is the budgeted variable overhead cost rate per output unit?
The unrealized loss of $61,650 previously recognized as other comprehensive income and as a separate component of stockholders' equity is now determined to be other than temporary. That is, the company believes that impairment accounting is now a..
Wilson Company is considering replacing equipment which originally cost $500,000 and which has $460,000 accumulated depreciation to date. A new machine will cost $790,000. What is the sunk cost in this situation?
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